In: Finance
What are the two methods to determine how much life insurance you require, briefly explain?
Multiple of income Approach
This approach also know as easy method or simple method.In this
method ,you need to multiply your annual gross income by 70% and
then multiply the result by 7. This will give you 7 years of income
at 70%.
For example, if your gross income is $100,000, then with the easy
method, your life insurance requirement is ($100,000 * 0.7) * 7 =
$419, 000.
This method is useful where both spouses work, are in good health,
with average debt.
Needs-Based Approach
In this approach the calculation is done on the basis of day-to-day
family expenses till the life expectancy of youngest member in the
family. The major factors to consider for assessment are number of
dependents and their needs,
Loans, children education and marriage Provision for non-working
spouse and what Kind of lifestyle you want to provide your
family
Once all the above expenses are summed up, the figure you arrive at
is what the family needs today, considering that you will die
today. Then deduct the life insurance policy you already had and
all your assets. This new figure is the gap that you need to
bridge.